Question

1. At the end of the year, a company offered to buy 4,510 units of a product from X Company for $12.00 each instead of the company's regular price of $17.00 each. The following income statement is for the 62,400 units of the product that X Company has already made and sold to its regular customers:

Sales $1,060,800

Cost of goods sold 504,192

Gross margin $556,608

Selling and administrative costs 156,000

Profit $400,608

For the year, fixed cost of goods sold were $122,304, and fixed selling and administrative costs were $78,000. The special order product has some unique features that will require additional material costs of $0.71 per unit and the rental of special equipment for $2,500. Profit on the special order would be?

2. The marketing manager thinks that if X Company accepts the special order, regular customers will be lost unless the selling price for them is reduced by $0.16. The effect of reducing the selling price will be to decrease firm profits by

Answer 1

In this question ,I will use marginal costing method.

Units: 62400. 4510. 62400

	Per unit ($)	Units=T 62400 ($)	Special order   Per unit ($)	4510 units Total ($)	Future pricing policy Perunit ($)	62400 units Total $)
Sales	17	1060800	12	54120	16•84 (17-0•16)	1050816
Less variable cost CoGS( 504192-122304)+ S&D( 156000-78000)	(7•37)	(459888)	(8•08) (7•37+0•7)	(36441)	(7•37)	(459888)
Contribution Sales- variable cost	9•63	600912	3•91	17679	9•47	590928
Less fixed cost 122304+78000		(200304)		202804 (200304+2500)		(200304)

Profit. = 400608. , Loss=185125.,Profit=390624

( Sorry, one row taken short)

1) when special order of 4510 units is taken ,loss occurs = $ 185125

2) Reduction in profits due to future cut of selling price by 0• 16$ = $9984

{ Profit at sale of 62400 units ( s.p= 17$ per unit) minus profit at selling price of 16•84$per unit

Or 400608-390624= 9984$ }